Archive for the 'entrepreneurship' Category

Note: This multi-part post is for first time founders. Anyone who has done it before will already know all this.

If you are a first time founder, what should you obsess about? Hopefully, you are all over the market opportunity. You are doing customer development to understand buyer and user personas, building knowledge about the problems they face, and evolving hypotheses for how to solve these problems. You are working on building a great product. You are focusing on the build-measure-learn loop and iterating and pivoting fast to incorporate market learnings. You are working on putting together an A team to get the job done. And you are managing your time so you are able to focus on these value generating activities.

Instead, I find that a lot of first time founders spend a disproportionate amount of time sweating the details on administrivia. Hiring professional service providers. Company formation. Making sense of Cap Tables. Setting up a bank account and doing the accounting. Keeping track of business contacts. Company positioning and messaging. Company naming. Corporate identity. Web site. Social media. Filing patents. You get the picture.

This stuff is not rocket science. It has to be done, but it doesn’t add value. Figuring out the core premise of your startup – that needs to be the main thing. Everything else is a distraction.

To help young founders spend the least possible time on this stuff, I am putting together a few posts that helps summarize some of the key tasks as well as pointing out some possible resources to execute those tasks. Hopefully this will also arm you with the vocabulary to learn more.

Hiring professional service providers

What is this? Professional service providers can help you with the mechanics of starting and running a company.

Why do it? A small cash outlay can save you a lot of time and the trouble of learning things outside your area of expertise (such as how to file corporate taxes) that adds no value to your startup or your professional trajectory.

Who do I need? A corporate attorney, a contract accountant, a creative web / graphics service provider, an IP attorney.

Company formation, a.k.a. “incorporation”

What is this? The process by which the startup becomes a separate entity from the people who own or operate the business.

Why do it? To protect your personal assets in case your company gets sued / owes money, or some such.

What kinds of entities are relevant? Choice of C-Corp, S-Corp, or LLC. This is a critical choice as it has significant tax implications. Forbes has a great article on C-Corp versus S-Corp, and the Small Business Administration has an article on LLC that you should read. Work with a corporate attorney who can help you pick what works for you.

How do I file for incorporation? You can file your own incorporation papers with the SEC of your state. The easiest thing to do is to hire a corporate attorney to do it for you.

What is this? A cap (capitalization) table lists who owns what stock in the company.

Why do it? To define ownership of the company. You need it immediately if you are incorporating with more than 1 founder, and you definitely need it when you raise your first round, or when you need to define an option pool for new employees.

Where can I find examples of cap tables to learn more? S3 ventures provides a fantastic excel template for free – you can download it here. Google any words that you don’t know in there and relax, you don’t need to understand all of that all at once. Venturehacks has a blog post with a video link depicting the process, as well as an excel template you can buy for $9.

Who can help me with this? Your corporate attorney.

Setting up a business bank account and business credit card

What is this? Opening a bank account and obtaining a business credit card for your startup, that is separate from your personal bank account and credit card.

Why do it? Keeps things clean and separate and saves you many hours of busywork writing expense reports from yourself to yourself. Keeps the credit histories separate.

Who can help me with this? You don’t need help on this one – just pick a local bank with a no-minimum-balance checking account product. Amazon business card is a great product for the corporate credit card.

Doing the accounting, and the software to do it with

What is this? Keep track of money in and money out for your business, separate from your personal finances.

Why do it? Some day you will get audited and you will be glad your books are squeaky clean from the start.

What do I need to do? Hire a contract accountant who can set you up with Quickbooks. You can do the Quickbooks management yourself until it gets unwieldy, then you can contract it out or hire a staff accountant. I have seen people use Quickbooks through Series B – I would suggest going with a professional ERP (enterprise resource planning system) before you get that far, especially if you are selling product and need to manage inventory.

Who can help me with this? A contract accountant.

Keeping track of business contacts via a CRM (Customer Resource Management) system

What is this? A CRM system helps you keep every detail of every conversation with every prospective customer / vendor / contact in one place via a database.

Why do it? Conversations can be long range and have a long half life – important to keep track of people, companies and tracks so nothing falls the cracks. Spreadsheets or documents or email trails are not scalable beyond a few conversations.

Who can help me get this done? You will have to set it up yourself. Then everyone who interacts with outside contacts should get in the habit of logging their notes and conversations in the system. There are free tools like the Zoho CRM, with limited functionality, or you can always spring for salesforce.com when you are big enough.

That’s enough for starters. I’ll cover basic marketing presence in the next post.

A few months ago, I was interviewed by a group of entrepreneurs from Mexico about my thoughts on innovation. Here are some key discussion points that came up in our conversation.

What is innovation?

When people use the word “innovation”, most of the time they are thinking about scientific or technological innovation. To me, however, innovation simply means coming up with new ideas on how to solve problems, and then successfully implementing these ideas into viable solutions, and it applies to every discipline.

Coming up with a non-invasive way to test a diabetic patient’s blood glucose level is innovation. Coming up with novel ways to incentivize a sales channel to double their product sell through rate is innovation. Coming up with visualization tools for budget-versus-actual analyses to help a cost center manage its expenses is innovation.

Why is innovation key in a startup?

Innovation is critical for any organization that needs to maintain a competitive edge, but for a startup, it is a matter of survival. Startups are always pressed for time and resources. They are constantly looking for new and non-obvious ways to solve problems and meet objectives quickly. They are constantly solving new problems never solved before. Being creative and flexible is key.

How do we come up with a process for innovation?

In my mind, the very nature of innovation is non-linear, whereas processes and frameworks tend to be rigid and structured. In my opinion, innovation and set processes don’t go well together. Rather than creating a documented process, we should focus on creating an environment that encourages risk taking and spontaneous, out-of-the-box thinking, which in turn encourages and nurtures innovation. We should make it ok for team members to try things that aren’t guaranteed to work. Also consider building in some intentional slack, so people have the space and breathing room to come up with great ideas during their down time.

How can you tell if your organization is innovating successfully?

It’s one of those “you know it when you see it” things. An innovative organization simply exudes creative problem solving vibes. There are also objective signs: more patents being applied for; faster turnaround in responding to market needs and customer requests; loyal and happy customers who trust an organization to solve their problems effectively; these all help to show that the organization is innovating where it matters.

Are there best practices for encouraging innovation in a startup?

One thing I advocate is the “tiger team approach”. I like to pull a cross functional team together from different departments. This project team gets together and works on a well defined problem with great focus until it is resolved. The diversity within the team ensures that the problem is looked at from multiple perspectives. Effective collaboration results in effective innovation.

The answer is that there’s no such thing as being too young to start a company. Just look at Tony Hsieh, the CEO of Zappos, who started his first company, LinkExchange, at 23 and sold it to Microsoft for $265 million less than two years later. Drew Houston, co-founder and CEO of Dropbox, started his first company, Accolade, at 21. Mark Zuckerberg was 19 when he first launched Facebook. And we all know the stories of Steve Jobs and Bill Gates.

I work with entrepreneurs of all ages, and I see a huge advantage to being a young founder: They don’t know what cannot be done. They are unfazed by problems that other people have not been able to solve. They believe that things will be different for them. They will not be discouraged by seemingly insurmountable obstacles – they will find a way forward. They will not shoot down ideas before they are properly explored, believing that there can be a gem in there somewhere. They also have an unbounded and irrepressible amount of energy, enthusiasm and drive. This is a huge asset when it comes to recruiting top talent, and motivating a team to push the frontiers beyond what seems possible. The healthy stamina that youth brings is very helpful too, considering the long hours they are taking on.

However, that confidence can sometimes be a double-edged sword. A friend of mine who was working on his first startup once said to me: “Elaine, I can read a book on anything, and then do it better than anyone who has done it a million times before.” I was struck speechless by his statement. In the final analysis, he lost a lot of time and energy learning entire new disciplines from scratch and reinventing the wheel, when a short phone call to someone relevant could have saved him some money and reduced his time to market.

There is a lot that one can leverage with youth, but if a young entrepreneur does not temper it with a readiness to listen well and take advice, then he or she might end up on a long and winding road to success. The good news is that it is easy to get help. Entrepreneurial hubs like Boston, the Bay Area, Austin, Boulder and so forth have healthy startup ecosystems full of highly qualified people who are willing and available to help while asking nothing in return. If you are a young entrepreneur doing something for the first time: Don’t be shy – lean on this support system. You will be surprised at how much free consulting you can get if you only asked.

Another easy way to get this support is to develop a team that fills gaps in your experience and perspective. A team comprised entirely of mini-me clones can only lead to group-think, which is the worst thing you can do to your team and business. If you are a young technical founder, find team members who have proven industry experience in business development or marketing, and vise versa. This holds true for all teams, including startups led by older founders. A little diversity goes a long way, especially in a startup.

As for financial concerns, youth can work for or against you. On the one hand, young founders are less likely to have a spouse, kids or mortgage. Working for stock and living on frozen dinners may be OK for a while. It can also be easier for them to relocate to a different city or even another country. On the other hand, younger founders are less likely to have successful startups already under their belt. Raising seed capital could be tough with an inexperienced team, and with little savings and no earnings, bootstrapping – much less paying for groceries — can be challenging.

While youth brings many benefits, I personally believe it is important for aspiring entrepreneurs to finish college, as young adults continue to develop and mature both personally and professionally through their college years. Focusing all of one’s energy on starting a company can make it hard for a young person to develop the skills that will bring one to full potential. Also, entrepreneurship is a learned skill, and college is a great place to gain that knowledge through classes, internships, and labs. The networking and resources available to aspiring entrepreneurs should be fully taken advantage of during those college years.

The bottom line is that there are many more “pros” than “cons” for being a young entrepreneur. If you are 20 and passionate about starting a company, then go for it! Your startup ecosystem stands behind you and we are ready to help you succeed.